SocGen: This Is What It Will Take To Get QE3 Back On The Table

According to SocGen's Brian Jones and Aneta Markowska, the QE3 question will be decided by the upcoming non-farm payrolls reports, and whether they slidee down again to the 100-150K range.

The minutes of the March 13 FOMC meeting made it clear that the data on the US economy is just too murky for any new action, with employment and GDP going their separate ways. The Fed will remain sidelined until they have a better sense of which way these trends are going to converge. We think that demand trends will prevail in the end and the pace of hiring will decelerate sufficiently to put QE3 back on the table before June. But do not expect that from March employment figures. We are looking for some deceleration in the pace of hiring (to 190k in March), but likely upward revisions to prior months along with another drop in the unemployment rate should mitigate the impact of slightly slower payroll growth.

Fed officials and most business economists are currentlystruggling with conflicting signals about the strength of the US economy. Employment and GDP data have gone their separate ways and it is not clear which set of indicators is telling us the truth. The minutes of the March 13 FOMC meeting made it clear the Fed will not take any actions until the conundrum is resolved. For QE3 to become reality, we need clear evidence that the economy is still growing at or slightly below trend. Since GDP numbers are already moving in the “right” direction, it is employment trends that will determine the fate of theFed’s balance sheet. In other words, the BLS (Bureau of Labor 1Statistics) holds the key to QE3. We believe that a sustained deceleration toward the 100k-150k pace is required to put QE3 back on the table.